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Federal Income Tax: Parsonage allowances: Ministers who live in a church-provided parsonage do not pay federal income taxes on the amount of their compensation that their employing church designates in advance as a parsonage allowance, to the extent that the allowance represents compensation for ministerial services, is used to pay parsonage-related expenses such as utilities, repairs, and furnishings, and does not exceed the fair rental value of the parsonage (furnished, plus utilities). Housing allowances (minister rents a home or apartment): Ministers who rent a home or apartment do not pay federal income taxes on the amount of their compensation that their employing church designates in advance as a housing allowance, to the extent that the allowance represents compensation for ministerial services, is used to pay rental expenses, and does not exceed the fair rental value of the home (furnished, plus utilities). Housing allowances (minister owns the home): Ministers who own their home do not pay federal income taxes on the amount of their compensation that their employing church designates in advance as a housing allowance, to the extent that the allowance represents compensation for ministerial services, is used to pay housing expenses, and does not exceed the fair rental value of the home (furnished, plus utilities). Housing-related expenses include mortgage payments, utilities, repairs, furnishings, insurance, property taxes, additions, and maintenance. Social Security & Medicare Tax: While clergy get a tax break on their housing allowance, they pay the full 15.3% rate of SE tax (Social Security/Medicare) on any taxable line items and the housing/parsonage allowance. In addition, clergy living in a church owned parsonage also have to pay SE tax on the value of the rental value of the church owned parsonage and any utilities paid by the church. Clergy may opt out of Social Security/Medicare by filing a 4361 in the first two years of ministry. However, this choice is non-reversible and we advise setting up an appointment with your local Social Security office to determine the long term affects of opting out. Clergy Financial Resources

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Clergy Financial Resources is a national accounting and finance organization serving churches and clergy since 1980. They have an unparalleled tax expertise on the complex issues associated with clergy tax law, clergy taxes, clergy compensation and church payroll. Clergy Financial Resources is a valuable resource for clergy, churches and denominations.

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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

For more information or if you need additional assistance, please use the contact information below.

Clergy Financial Resources
11214 86th Avenue N.
Maple Grove, MN 55369

Tel: (763) 425-8778 
Fax: (888) 876-5101
Email: clientservices@clergyfinancial.com